Southeast Asia Crypto Assets Fund Flow Analysis: Risks and Challenges

With the global proliferation of Crypto Assets and the rapid growth of users in Southeast Asia, on-chain capital flows in the region have become more frequent and complex. An in-depth analysis based on a sample of 10,000 blockchain addresses extracted from 2020 to the present reveals potential risks in the circulation patterns of Crypto Assets. This study not only demonstrates the risks of using Crypto Assets in Southeast Asia but also explores the underlying reasons for this phenomenon from a macro perspective and provides relevant recommendations.

Overview of the Southeast Asian Crypto Assets Market

In recent years, the acceptance and popularity of Crypto Assets in the Southeast Asian region have significantly increased. As an emerging market, Southeast Asia has unique characteristics in terms of economic structure, policy environment, and user behavior:

1. Rapid user growth: The high proportion of young people in Southeast Asia, coupled with the popularity of mobile internet, has led to a rapid increase in encryption users in the region, with estimates of tens of millions of users.

2. Strong demand for cross-border payments: The large number of cross-border laborers in Southeast Asia makes Crypto Assets a convenient means for cross-border payments, leading to its widespread application.

3. Regulatory environment varies: The regulatory policies for virtual currencies in Southeast Asian countries are inconsistent. Some countries support the legalization of Crypto Assets, but most regions have yet to establish a clear regulatory framework, leading to certain compliance risks in the flow of funds.

Sample Analysis and Key Findings

1. Free flow of funds

Among the 10,000 blockchain addresses analyzed, approximately 45.23% of the funds are freely circulating on public chains through decentralized wallets, demonstrating high liquidity and decentralized characteristics. The total amount of freely circulating funds reaches $1.484 billion, indicating that decentralized trading methods have become mainstream among users in Southeast Asia.

2. Association with the black and gray industry

More than $110 million in funds have flowed directly to addresses related to the black and gray industry, accounting for over 12%. Further tracking of the fund flows of the remaining addresses revealed that through secondary or multiple transactions, some addresses also had indirect connections to the black and gray industry, raising the proportion of risk addresses associated with the black and gray industry to 16.82%. This means that among tens of millions of Southeast Asian Crypto Assets users, there may be millions of users who are at risk of having financial transactions, directly or indirectly, with the black and gray industry.

Analysis of Capital Flows and Risks in the Black and Gray Industries

1. Typology of black and gray industry addresses

The risk labels categorize addresses closely related to the black and gray industries into 3 major categories and 44 subcategories, with the high-risk categories mainly including:

• Mixing Service: Mainly used for anonymizing the flow of funds
• Underground money house: used for cross-border illegal fund scheduling and money laundering
• Fraudulent platforms: Involving false investments, Ponzi schemes, killing foreign accounts, pig butchering, etc.

Among these high-risk address types, more than 240 specific entities in the black and gray industries are involved.

2. High-risk capital flow phenomenon

The research results show that the flow of funds in certain specific categories is particularly significant:

• Over 10 million dollars have flowed directly into addresses related to underground money houses, with the transaction frequency totaling thousands of times.
• Approximately $11 million in funds clearly flowed to online gambling platforms.
• Over 22 million dollars in funds have been funneled into fraudulent platforms.

Such capital flows reveal the complexity and concealment of black and gray industry activities, especially under the anonymity and cross-border characteristics of Crypto Assets, which allows criminals to frequently carry out illegal fund transfers and money laundering activities.

Funding Inflows of Sanctioned Platforms

1. The proportion of capital inflow into sanctioned platforms

Approximately 53.49% of the funds directly associated with the black and gray industries flowed to sanctioned platforms, with the number of related transactions being twice that of those flowing to underground money houses, totaling over 55 million USD. This indicates that sanctioned platforms remain a major inflow of high-risk funds.

2. Case Study: A Mixed Coin Tool

As a commonly used coin mixing tool, a certain platform received over 54 million USD in funds during this research, accounting for 97.84% of the total funds flowing into all sanctioned platforms. However, since the U.S. Treasury Department placed this platform on the list of sanctioned entities in August 2022, its trading volume has significantly declined, indicating the effective suppression of its fund inflows due to the sanctions.

Macro Risk Analysis and Causes Discussion

1. Crypto Assets anonymity and high liquidity: The anonymity of Crypto Assets makes it difficult to trace illegal funds flowing on the chain. Even if there are technical means to mark risky addresses, funds can still obscure their flow through techniques such as coin mixing, thus facilitating money laundering activities.

2. Lack of Regulatory Framework in Southeast Asia: The regulatory measures for Crypto Assets in various Southeast Asian countries are still not完善, leading to an increased risk of cross-border capital flow. Some regions still adopt a wait-and-see attitude towards Crypto Assets and have not taken proactive regulatory measures, providing space for the flow of funds in the black and gray industries.

3. Socio-economic environment: The economic development level of some Southeast Asian countries is relatively low, with a large wealth gap, leading many scammers and online gambling operators to use this region as a base, mainly attracting foreigners to participate.

4. Technical Regulatory Challenges: Crypto Assets exchanges, wallet service providers, and decentralized platforms often face difficulties in effectively monitoring and investigating the risks behind transactions due to technological and structural limitations. Decentralized platforms, in particular, lack direct control over transaction data and are unable to promptly identify malicious activities or risks such as money laundering. While some centralized platforms attempt to enhance monitoring through KYC and AML measures, cross-chain transactions and anonymity technologies still complicate the tracking of fund flows, increasing security risks.

Conclusion and Recommendations

The analysis of on-chain capital flows in the Southeast Asian region indicates that there are significant security risks associated with the use of Crypto Assets in the area. To effectively reduce the risk of illegal on-chain capital flows, it is recommended to implement the following measures:

1. Strengthen regulatory mechanisms: Governments of various countries should formulate and implement comprehensive Crypto Assets regulatory policies, combat illegal on-chain financial activities through international cooperation, and introduce clear virtual currency regulatory frameworks tailored to different national conditions.

2. Enhance users' risk identification capabilities: Increase anti-fraud education for ordinary users, helping them understand on-chain risks and strengthen their ability to identify and prevent funds related to the black and gray industries.

3. Promote technological innovation: Actively research and apply on-chain tracking and anti-money laundering technologies, accurately identifying and combating high-risk capital flows through big data analysis, artificial intelligence, and other technical means.

4. Establish a multi-party collaboration mechanism: Encourage cryptocurrency exchanges, wallet service providers, and relevant institutions in the Southeast Asia region to work together, strengthen information sharing and risk joint defense, and improve on-chain security.

Southeast Asia, as one of the regions with the greatest potential for the development of Crypto Assets, still faces challenges related to capital flow risks in the future. By strengthening regulation, enhancing user awareness of security, and promoting innovation in technological measures, we hope to gradually reduce the illegal flow of funds on-chain and facilitate the healthy development of the digital economy in Southeast Asia.